A Summer Internship Project Report On

ANALYSIS OF WORKING CAPITAL

MANAGEMENT OF BPCL


2013

Mr. Ranjan Hamlet Minto John Shahzeen Asif Khan
Training head Pgdm 2012-14
Bharat Pumps and Compressors Ltd.
Naini, Allahabad


Develop at





BHARAT PUMPS AND COMPRESSORS LIMITED
(A Government Of India Undertaking)
NAINI, ALLAHABAD 211006
U.P. INDIA


Under the supervision of Compiled By


2



CERTIFICATE BY COMPANY/INDUSTRY/INSTITUTE




























3



DECLARATION



I hereby state that the dissertation entitled Analysis of working capital management of
BPCL submitted by me in partial fulfillment of the requirements for the award of PGDM
(General) is my original work and that it has not previously formed the basis for the award of any
other Degree, Diploma, Fellowship or other similar titles.
The further declare that the information presented in this project is true and original to the best of
my knowledge.







Place: NOIDA Name: Shahzeen Asif Khan
Date: 4 JULY 2013 Roll No: PGFA1103
Course: PGDM (General)







4


PREFACE


Excellence is an attitude that the whole of the human race is born with. It is the
environment that makes sure that whether the result of this attitude is visible or otherwise. The
well planned, properly executed and evaluated industrial training help a lot in including the good
work culture. It provides linkage between the student and industry in order to develop the
awareness of industrial approach to problem solving based on broad understanding of process
and mode of operation of an organization.

During this period, the students get their first real world experience on working in an
actual real world environs. Most of the theoretical knowledge that they have gained during the
course of their studies is put to test here. Apart from this, the student gets an opportunity to learn
the latest technologies, and gain insights into the working of the system, which their colleagues
at work have, already experienced.

I had the opportunity to have this real practical experience, which increased my sphere of
knowledge beyond theoretical realms. During the training period I learned how an actual project
evolves from inception to maintenance, what problems may actually present them, how different
people have different set of expectations (often conflicting) from the same things and how
quality is ensured. And most of all I observed how team effort is organized and integrated for the
finished product to take shape.


(Shahzeen Asif Khan)





5



ACKNOWLEDGEMENT

It is a matter of privilege for me to work at BHARAT PUMPS AND COMPRESSORS
LIMITED.A formal line of appreciation would hardly meet the end of justice expressing my
sincere thanks to Mr Rajan Hamlet Minto John (Manager Training) & Mr U.C Sharma,Mr.
V.SSingh ,for providing me every possible help to complete my work within given time period
of 7 weeks.

I as a vocational trainee with the place on record my gratitude and appreciation of
continued support, guidance and co-operation extended by the different employees of each level
of Finance, Human Resource and development, Purchase, Store and Marketing.

At the end I am thankful to all the employees of the BPCL, Naini, who gave their full support
and co-operation during my training by giving me sufficient knowledge related to the
organizational environment.
The completion of this training report is the result of valuable guidance, constructive suggestion,
keen interest and eminent supervision of all the Training officers and every experienced
employee of BPCL.




Thanking you.
SHAHZEEN ASIF KHAN


6


Table of Contents
EXECUTIVE SUMMARY .................................................................................................................9
OBJECTIVES OF THE STUDY ............................................................................................................... 10
SCOPE OF THE STUDY ....................................................................................................................... 11
CHAPTER-1: INTRODUCTION............................................................................................................. 12
COMPANY PROFILE ............................................................................................................................. 12
SWOT ANALYSIS .................................................................................................................................. 17
OUTLINE OF THE STUDY ............................................................................................................. 19
PRODUCT PROFILE .............................................................................................................................. 19
CUSTOMER OF BPCL ............................................................................................................................ 21
DEPARTMENTS OF BPCL ...................................................................................................................... 22
STORE BILL SECTION ............................................................................................................................ 22
PROVIDEND FUND SECTION ............................................................................................................ 28
MEDICAL SECTION ............................................................................................................................... 29
FUNCTIONING OF MARKETING PURCHASE DEPARTMENT OF BPCL ................................................... 29
CHAPTER-2: LITERATURE REVIEW ..................................................................................................... 31
OVER VIEW .......................................................................................................................................... 31
CONCEPT ............................................................................................................................................. 32
AN ANALYSIS OF WORKING CAPITAL MANAGEMENT RESULTS ACROSS INDUSTRIES ....................... 44
CHAPTER-3: RESEARCH METHODOLOGY ........................................................................................... 47
TYPES OF DATA COLLECTION .............................................................................................................. 48
Analysis Used in Study: Descriptive analysis . ..................................................................................... 48
Research Design .................................................................................................................................. 48
Data Collection .................................................................................................................................... 49
Limitations of the study ...................................................................................................................... 49
CHAPTER-4: RESEARCH FINDINGS & ANALYSIS .................................................................................. 50
AGGREGATE SIZE OF WORKING CAPITAL ............................................................................................ 51
CURRENT ASSETS ................................................................................................................................ 52
CURRENT LIABILITIES........................................................................................................................... 54
OPERATING CYCLE ANALYSIS .............................................................................................................. 56

7


CHANGES IN WORKING CAPITAL MANAGEMENT ............................................................................... 59
ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL .......................................................... 60
CURRENT RATIO .................................................................................................................................. 62
QUICK RATIO ....................................................................................................................................... 63
MIXED OR COMPOSITE RATIO ............................................................................................................ 64
INVENTORY TURNOVER RATIO: .......................................................................................................... 64
RECEIVABLE TURNOVER RATIO ........................................................................................................... 66
CREDITORS TURNOVER RATIO ............................................................................................................ 67
CURRENT ASSETS TURNOVER RATIO .................................................................................................. 67
CAPITAL TURNOVER RATIO ................................................................................................................. 68
FIXED ASSETS RATIO ............................................................................................................................ 69
GROSS MARGIN RATIO/GROSS PROFIT RATIO .................................................................................... 69
DIRECT WAGE EXPENSE RATIO ........................................................................................................... 70
STOCK TO WORKING RATIO ................................................................................................................ 70
EMPLOYEE REMUNERATION RATIO .................................................................................................... 70
TAX PROVISION RATIO ........................................................................................................................ 71
SELLING AND DISTRIBUTION RATIO .................................................................................................... 71
PROPRIETARY OR NET WORTH RATIO ................................................................................................ 72
NET FIXED ASSETS TO NET WORTH RATIO .......................................................................................... 72
CHAPTER-5: SUGGESTIONS & RECOMMENDATIONS .......................................................................... 73
CONCLUSION ....................................................................................................................................... 74
RECOMMENDATIONS/STRATEGIES ..................................................................................................... 76
REFERENCES .................................................................................................................................... 81
APPENDICES .................................................................................................................................... 82






8




LIST OF TABLES AND FINGERS


AGGREGATE SIZE OF WORKING CAPITAL ............................................... Error! Bookmark not defined.
CURRENT ASSETS ................................................................................... Error! Bookmark not defined.
CURRENT LIABILITIES.............................................................................. Error! Bookmark not defined.
OPERATING CYCLE ANALYSIS ................................................................. Error! Bookmark not defined.
CHANGES IN WORKING CAPITAL MANAGEMENT .................................. Error! Bookmark not defined.
ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL ............. Error! Bookmark not defined.
CURRENT RATIO ..................................................................................... Error! Bookmark not defined.
QUICK RATIO .......................................................................................... Error! Bookmark not defined.
MIXED OR COMPOSITE RATIO ............................................................... Error! Bookmark not defined.
INVENTORY TURNOVER RATIO: ............................................................. Error! Bookmark not defined.
RECEIVABLE TURNOVER RATIO .............................................................. Error! Bookmark not defined.
CREDITORS TURNOVER RATIO ............................................................... Error! Bookmark not defined.
CURRENT ASSETS TURNOVER RATIO ..................................................... Error! Bookmark not defined.
CAPITAL TURNOVER RATIO .................................................................... Error! Bookmark not defined.
FIXED ASSETS RATIO ............................................................................... Error! Bookmark not defined.
GROSS MARGIN RATIO/GROSS PROFIT RATIO ....................................... Error! Bookmark not defined.
DIRECT WAGE EXPENSE RATIO .............................................................. Error! Bookmark not defined.
STOCK TO WORKING RATIO ................................................................... Error! Bookmark not defined.
EMPLOYEE REMUNERATION RATIO ....................................................... Error! Bookmark not defined.
TAX PROVISION RATIO ........................................................................... Error! Bookmark not defined.
SELLING AND DISTRIBUTION RATIO ....................................................... Error! Bookmark not defined.
PROPRIETARY OR NET WORTH RATIO ................................................... Error! Bookmark not defined.
NET FIXED ASSETS TO NET WORTH RATIO ............................................. Error! Bookmark not defined.


9


EXECUTIVE SUMMARY























10


OBJECTIVES OF THE STUDY

This research is focusing on working capital management and its effects on profitability. Study
of the working capital management is important because unless the working capital is managed
effectively, monitored efficiently planed properly and reviewed periodically at regular intervals
to remove bottlenecks if any the company can not earn profits and increase its turnover. With
this primary objective of the study, the following further objectives are framed for a depth
analysis.

The Main objectives of the studies are:
1. To study the way and means of working capital finance of the company.
2. To estimate the operating cash cycle and working capital requirement of the company.
3. To establish a relationship between Working Capital Management and Profitability over a
period of five years of the company..
4. To find out the effects of different components of working capital management on
Profitability
5. To establish a relationship between the two objectives of liquidity and profitability of the
BPCL firm.
6. To find out the relationship between debt used by Arabian Industry LLC and its Profitability
7. To draw conclusion about relationship of working capital management and profitability of the
company.
8. To study the optimum level of current assets and current liabilities of the company.
9. To study the liquidity position through various working capital related ratios.
10. To study the working capital components such as receivables accounts, cash management,
Inventory position







11


SCOPE OF THE STUDY

This project is vital to us in a significant way. It does have some importance for the company
too. These are as follows:
This project will be a learning device for the finance student.
Through this project we would study the various methods of the working capital management.
The project will be a learning of planning and financing working capital.
The project would also be an effective tool for credit policies of the companies.
This will show different methods of holding inventory and dealing with cash and receivables.
This will show the liquidity position of the company and also how do they maintain a
particular liquidity position.













12





Chapter-1: Introduction


COMPANY PROFILE ................................................................................ Error! Bookmark not defined.
SWOT ANALYSIS ..................................................................................... Error! Bookmark not defined.
OUTLINE OF THE STUDY .................................................................... Error! Bookmark not defined.
PRODUCT PROFILE ................................................................................. Error! Bookmark not defined.
CUSTOMER OF BPCL ............................................................................... Error! Bookmark not defined.
DEPARTMENTS OF BPCL ......................................................................... Error! Bookmark not defined.
STORE BILL SECTION ............................................................................... Error! Bookmark not defined.
PROVIDEND FUND SECTION ............................................................... Error! Bookmark not defined.
MEDICAL SECTION .................................................................................. Error! Bookmark not defined.
FUNCTIONING OF MARKETING PURCHASE DEPARTMENT OF BPCL ...... Error! Bookmark not defined.







COMPANY PROFILE


13


Bharat Pumps and Compressors Limited, (the public sector enterprise) was incorporate in 1970.
The factory is situated in the Trans Yamuna area of Naini Allahabad. The company has started
its Business from 1973. Later on during year 1986, the company was brought out under the
holding Company Bharat Yantra Nigam Limited. With the objective to design research and
development and manufacture and supply of capital goods in the fluid handing field including
Provision of service connected there with. BPCL had entered into technical collaborations with
World famous manufactures of Pimps, Compressors and Gas cylinders and high technology Oil
Equipments. In a very short period the company absorbed the technology and establishes itself as
a World renewed manufacturing of a wide range of high-tech products in the fluid handing areas.
BPC has supplied its products to the total satisfaction if the customers in almost all national
projects of companies like ONGC, OIL, BPCL, IOCL, HPC, RCF, Nuclear Power Corporation,
Deptt. Of Atomic Corporation, Deptt. Of Atomic Energy, IPCL etc.

In spite of being an import substitution oriented unit. BPCL competes with renowned
international manufacturing and secure Prestigious orders from the counts core sector industrials.
Almost all the national project in the areas of oil exploration and exploration. Refineries
petrochemicals and Fertilizers process industries; thermal hydro and nuclear power plant have
BPCs products which are functioning to the total satisfaction of the total satisfaction of the
customers. The confidences reposed on BPCL by customer select in terms of steady and
continuous ion order position as well as receipt of high value order to manufacturing and supply
the high tech product like cementing units. Sucker Rod Pumping units and Nuclear Pumps
besides Mud pimps for deep deleing oil rigs and compressors etc.
Through quality of BPCL product in good as compared to any other competitors but the
company did not perform well due to various reasons. The concept of holding company was this
adopted by the government to recognize BPCL along with other five companies in a manner
which was most conductive to their effective performance. In 1986, BPCL was made a
subsidiary of Bharat Yantra Nigam limited. Who formed as holding for six companies which
come under the Department of Heavy Industry?
BPCL is the only company in Asia to manufacturing a wide range of hi-tech products, heavy
duty pumps and compressors and high pressure seamless and welded gas cylinders, under one
roof.













14


BRANCHES OF BPCL
Its manufacturing unit is at Allahabad only. But it has 6 more branches at-
Delhi
Mumbai
Kolkata
Chennai
Dibrugarh (Assam)
Baroda (Gujrat)


VISION
To become an Indian MNC in the field of Fluid handling, Gas Compression, Gas storage
equipment, services & project
Management.

MISSION
To provide quality products and services to core sector industries with special thrust on Oil and
Natural Gas, Petrochemicals, Refineries, Nuclear and Thermal Power Plants, Fertilizers and
Public Transport Services, complying with health and safety requirements.



OBJECTIVES
To increase market shares of our products and services.
To maximize customers satisfaction by providing quality products and services with
stipulated delivery.
To increase the business of spares and rendering prompt after sale and services including
refurbishment.
Achieve export turnover of 15% by 2009-10.




15


CAPABILITIES
BPCL A subsidiary of Bharat Yantra Nigam Ltd. A subsidiary of enterprise are engaged in the
manufacturing of reciprocating pumps, reciprocating compressors, centrifugal pumps, and gas
cylinders catering to the needs of a wide range of industries such as fertilizers, refineries.
Petrochemical, oil and gas exploration, nuclear and thermal power, or processing and metal
extraction, air separation refrigeration plants, etc.
ENGINEERING CAPABILITIES- BPCL have a complete team of design and development
engineers specialized in the field of reciprocating compressors, reciprocating pumps, electrical
drives and measurement and control instrumentation. The constituents of this team are
thoroughly knowledgeable and experienced design and development of more than 15 years. Most
of engineers have been trained at collaborators works and have through experience of a wide
variety of applications handled by BPCL.
Pumps and compressors are designed in conformity of American Petroleum Institute Standards
(e.g. API 628 for Reciprocating Compressors, API 610 for centrifugal pumps), PN-EUROPE or
any other national/international codes specified by client consultants. In case of reciprocating
machines, analogue digital pulsation study is carried out to evaluate and optimize performance
during design stage itself. In case of centrifugal machines, seismic analysis is carried out
wherever required.
MANUFACTURING CAPABILITIES- BPCL has excellent in-house facilities for
reciprocating as well as centrifugal machines. The modernization machines, shop containing
CNC machines, etc. Is well equipped to achieve the required manufacturing tolerance had finish
on the pumps and compressors components.
The machine shop is staffed by expert operators working under the supervisors and engineers
who bring in the state of the art and technology in all products.
BPCL have a fully equipped test bed for pumps and compressors including clean room facilities.
A well-known team of quality control and assurance engineers ensures high quality throughout
all phases of manufacturing. Their party inspection by reputed inspection agencies, such as,
bureau EIL, PIDL, UHDE, H&G are offered on all our products at clients discretion.





16



STRATEGIES, ACTION, PLAN
BPCL have already initiated action for attainment of ISO 9000 certification.
BPCL is already registered with process consultants. Various export houses. We are
receiving from EEPC, Mohan export, PEC etc.
BPCL has initiated action to become of international trade council.
Export possibility will also be dealt through our holding company i.e. BYNL.
As agents are the main contact with the ultimate customers, we are also looking for
appointing some agents of repute in foreign countries.
To participate in international trade fairs which are held in India & Abroad.
Containing ultimate and mailing our product leaflets and brochures to them.
QUALITY ASSURANCE

Quality Assurance
Programmes conform to
International
specifications and
requirements.
Research and
Development efforts are
supported by test facilities
for model testing in the
centrifugal pumps,
reciprocating pumps and
compressors area and also
carry out live testing of
expendables etc.
Fully groomed
Installation,
Commissioning and Spare
Parts Division renders
Product Support,
Technical Assistance and
advice besides providing
quick and effective after
sales service



A strong Design
Department has been
established which houses
Computer aided Design
Center. Highly qualified,
trained, experienced and
competent engineers are
involved in application
engineering,
thermodynamic
calculations, hydraulic
calculations and systems
design in the area of piping,
instrumentation, electrical,
operational control etc.
The company undertakes
long term maintenance
contract of the equipments
installed and commissioned
at customers' plants, with
the objective to maximize
their profits and minimise
their risks.


17


SWOT ANALYSIS

STRENGTHS

Good engineering capabilities.
Good design backed by reputed foreign pump manufacture.
Good manufacturing & testing facilities.
Good performance of equipment already supplied. .
Good quality & high degree of reliability
Stable industrial relations.



WEAKNESSES

High material and manufacturing cost.
Delays in delivery.
Lack of planning and scientific monitoring of jobs.
Lack of reliable vendors for casting and other bought outs.
Inadequate after sales services & delay in resolving
customers problems higher fixed costs & administrative expenses.
Poor liquidity position & market credibility.
Reference to BIFR.

OPPORTUNITIES

Large investment planned in oil and gas, petrochemicals, refineries , power &
chemical industries , etc during 8
th
plan period.
Growing demand for pumps in all the core sectors.









18


THREATS

Entry of foreign suppliers due to recession in the world market increased
competition from private sector companies and entry of more and more foreign
companies into Indian market resulting in cut throat competition.
Dependence on world bank , other agencies for funds results in large scale
import equipment.
Project consultants/process licensers imposing preferences on Indian customers
leading to imports.
Foreign companies quoting dumping prices.
Reduction in customs duties has made offer from overseas companies more
competitive in comparison to Indian counterparts.
Due to financial constraints customers going in for turnkey packages with
credit package thus altogether eliminating domestic equipment
manufacturers/suppliers.
Companys own ex-collaborators are now competing with it.
Ability of foreign companies to quote very competitive price.
Recession in steel industry is hitting the gas cylinders.













19


OUTLINE OF THE STUDY

The management of working capital is very important. It involves the day to day affairs of the
company. The motive behind the study is to develop an understanding about the working capital
in the running business organization and to develop the company in developing the efficient
working capital management. Therefore it helps in future planning and control decisions.

PRODUCT PROFILE


PRODUCTS


Pumps and
Compressors

Centrifugal
Pumps

Pumps for
Application
in Power
Plants.

Reciprocating
Piston and
Plunger
Pumps.

Cementing
Units.

Sucker Rod
Pumping
Unit.

Reciprocating
Compressors.
Gas Cylinders

High Pressure Seamless Industrial Gas
Cylinders.

Welded Cylinders.

Cylinders in Cascade for Storage of Compressed
Natural Gas (CNG)



20


Range of Products
Centrifugal Pumps

Maximum
Power
2500 KW
Maximum
Pressure
140 kg/cm
2

Maximum
Capacity
12,000 M
3
/Hr
Fluids
Handled
Demineralised water, Sea water, Hydrocarbons,
Naphtha, LPG, Carbonate Solution, Boiler Feed
Water, Benfield solution, Alkaline and Acidic
Solution, Ammonia liquor and slurry
Reciprocating Pumps

Maximum
Power
1700 KW
Maximum
Pressure
675 kg/cm
2

Maximum
Capacity
315 M
3
/Hr
Fluids
Handled
Drilling Mud, Cementing Slurry, Crude Oil
steam, Condensate, Heavy Water, Fatty Acids,
Ammonia Carbonate, Liquid Ammonia, Water
Injection
Reciprocating Compressors
Maximum Power 25,000 KW
Maximum Pressure 450 kg/cm
2

Maximum Capacity 70,000 NM
3
/Hr
Fluids Handled Air, Nitrogen, Oxygen, Carbon Di-Oxide,
Hydrocarbons, Ammonia, Synthesis Gas,
Hydrogen Sulphate, Coal Gas etc.
GAS CYLINDERS
Maximum Pressure 400 kg/cm
2

Maximum Capacity 110 Litres.
Fluids Handled Oxygen, Nitrogen, Hydrogen, Argon, Air, Helium, Carbon Di-
Oxide, Nitrous Oxide, Acetylene, Ammonia, Chlorine, Freon,
LPG, Compressed Natural




21


CUSTOMER OF BPCL











Oil & Natural Gas Commission.
Indian Oil Corporation.
Hindustan Petroleum Corporation.
Fertilizer Corporation of India Ltd.
Indian Farmers Fertilizer Corporation.
Gas Authority of India Ltd.
Indian Petro-Chemicals Ltd.
Madras Refineries Ltd.
Oil India Ltd.
Bharat Petroleum Corporation.
Engineers India Ltd.
National Fertilizer Corporation.
Indo Gulf Fertilizers Corporation.
Indraprastha Gas Limited.
Bongaigaon Refineries & Petro-Chemicals Ltd.
Cochin Refineries LtdTamil Nadu Petro-
Chemicals Ltd.






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DEPARTMENTS OF BPCL

FINANCE
MARKETING
PURCHASE
HUMAN DEVELOPMENT
STORE
QUALITY CONTROL

SECTIONS OF FINANCE DEPARTMENT

STORE BILL SECTION & FOREIGN PAYMENT MR.C.N MISHRA
SALES- MR. G.P SINGH
PROVIDEND FUND MS. GAURI
SALARY MR. M.N TRIPATHI
MISCELLANEOUS MR. B.V SINGH
INCOME TAX- MR. RANJEET SINGH
COSTING-MR. WAHIDI JI
BOOK SECTION- MR. S.B GUPTA
BANK SECTION-MR SANJAY GUPTA
MEDICAL SECTION -MR. R.C PANDEY
STORE BILL SECTION
Base of placing the Purchase Order (PO)- Design Department raised indent for procurement of
material for various products the main product of BPCL are:
1. Reciprocating Compressor
2. Reciprocating Pumps
3. Centrifugal Pumps
4. Gas Cylinder (excluding LPG)
After receipt of indent Purchase Department offer quotation from different suppliers through
tenders. There are 4 types of tenders-
1. Single tender (for only one reputed supplier).
2. Limited tender (Some regular suppliers are said to be providing quotation after receipt of
quotation comparative statement is prepared in which price quality, past performances of
the supplier aremaintained. The comparative statement send to finance department for
concurrence and final decision are given by finance department.
3. Global tender (These are given in newspaper and international supplier submits their
quotations through this tender).

23


4. Open-tender (quotation calls for international).
Purchase order (PO)- This is an arrangement between buyers and suppliers & suppliers and
suppliers is bound to deliver the materials as mentioned in PO-
Items name
Quantity
Unit rate
Packing & forwarding [0.5% to 5% of material value (mv)]
excise duty
from to 29-02-2008-16.48%
from to march 2008-14.42%
fromto o7-12-2008-10.03%
from to 24-02-2009-8.24%
from to 27-02-2010-10.03%
VAT [MV+P&F+Excise duty] 5 %(19-02-2010) or [13.5% applicable in 5% cases].
Service tax (10.3%is applicable on machinery work or labour job).
Central Sales Tax (CST)- Presently 2% on [MV+P&F+ED].
Government taxes like VAT, CST, Service Tax %age is not given in PO.
Payment to the supplier When supplier supplies the material, he provide bills invoice/ bill,
taxable invoice [for moderate credit- credit taken which excise duty are paid byBPC to
suppliers. BPC takes excise credit on the basis of taxable invoice.]
According to PO supplier invoice/ bill the same or past as per PO rate terms & conditions.
Late delivery inventory- 0.5% per week subject to maximum of 5% of delayed supply is
deducted from the bill. If supply is delayed beyond delivery period (as per PO delivery
period is 4 weeks from the date of PO), all payments are released through cheques / RTGS.
Note-; ED, VAT, ST or refunded/credited by sales tax department & excise department.



24


Contractor transport payment- Annual contract is awarded for transportation of materials
from BPCL to any place within India & all over India to BPCL. Presently there are 3
transporters. e.g.- ETO (Economic Transport Organisation), ARC (Associated Road
Organisation), Indo Aryan Organisation.
For different jobs, construction of roads, building, foundation of machinery tanks the
contract is awarded on the basis of tender.
Income tax- @ 2.00% of labour job amount. Machinery is deducted from the suppliers bill.
Finally store department provide Store Receipt Voucher (SRV) to finance for valuation.
Purchase of imported materials- On the basis of PO, materials are imported by 2 ways-; (1)
through letter of credit (LC) - 98%
(2)On collection basis-2%
Establishment of LC-
1. Banker- SBI Naini
2. Consignee- overseas supplier, foreign vendors (supplier) beneficiaries.
3. Consignee- SBI Naini a/c, BPCL Naini (receiver)
Foreign payment-:
After placement of the PO purchase department sent request letter to finance department.

Foreign payment section along with 2 copies of PO and suppliers consent letter for
establishing LC. Finance department on the basis of PO prepare the following documents:
1. Letter addressed to SBI Naini (chief manager) in which PO no., date, value in foreign
currency, freight forwarders, name and address are mentioned.
2. Shipping documents. In this document the following points are indicated:
i. Airway bill / Bill of lading
ii. Invoice/Bill
iii. Packing list
iv. Country or origin
v. Test Inspection Certificate
vi. Certificate of utilities
vii. Specification of Goals
viii. Certificate of completion of supply
ix. Warranty/ Guarantee

25


Total LC value in FC suppliers name, name of freight forwarders, late
delivery penalty if applicable, PBC (Performance Bank Guarantee) if
applicable, requirement of advance set of documents for shipping of
materials.
3. Guarantee LC form (2) suppliers name, FC value, price term [free on boat]
All charges from suppliers workshops to sea/ airport like handling charges,
documentation charges, warehousing charges, paid by suppliers and finally charges
in his invoice.
4. Foreign exchange control.
Name of supplier
Material cost
The LC is established by the buyer through his banker (SBI, Naini) with a prime bank
located in the country of supplier. Confirmation of LC is confirmed by the buyers
banker only.
Terms of dispatch/ shipment (fob)- in this case supplier is responsible for
transportation of material upto port, documentation charge, warehouse charge will be
paid by the supplier and finally charged in this bill.
Ex-works: The supplier is only responsible on his work place. The freight forwarder of
buyer is responsible for material handling upto port and all expenses at port.
Cost insurance and freight of air/ship- will be born by the supplier.
Port of Loading- The supplier shipped the material with the consultant of freight forwarder in his
country.
Port of Discharge- Material discharge of Mumbai port and the clearing agent of buyer shall
provide all expense of the port along with freight bill.
Releasing of material from port- after payment freight port trust expenses custom duty and
receipt of original documents like bill/invoice, packing list, country of origin and AWB/ BL.
Invoice/bill and AWB/ BL must be signed by chief manager SBI Naini. In some cases original
documents are not received in SBI Naini and material reached and Mumbai port then in case of
air release order duly addressed to freight forwarder and signed by chief manager SBI Naini. In
case of sea indemnity bond is issued and also signed by SBI is sent to freight forwarder for
increasing the material from the port. After releasing the materials through our transporters,
materials are send ton BPCL Naini. .

26


MICSCELLANEOUS PAYMENT SECTION.

Function of miscellaneous payment section
1. Payment of transport bills
2. Payment of mobiles and telephones
3. Miscellaneous advance and adjustment
4. AMC (annual maintenance contracts)
5. Publication and advertisement
6. Payment of leased houses
7. Security/earnest money deposits and payment
8. Reduction of income tax &payment
9. Training and seminar
10. Power payment
11. Miscellaneous payments

DEDUCTION AND PENALTY IN CASE OF PENALTY

Deduction on late arrival (for all types of vehicles)
=Contract amount +diesel hike/25
2*1%

Extra mileage rate rs.5.60 per km
Penalty case
Contract amount +diesel hike
Days in a month or 25 days/
25 hrs *hrs indicated in the bill 4 or 3
LANDLINES
36 landlines connection DGM (60000/-)
90 Mobiles are issued to the officer diff.department

IMPEREST
Imperest is an advance being paid to each and every department to meet out the expenses of
emergent and petty nature.

MISCELLANEOUS ADVANCE AND ADJUSTMENTit includes material handling ,local
cash purchase ,repair handling ,welfare /press and publication expenses etc.

AMC-annual maintenance contracts
AMC for computers
AMC for crane services
AMC for weighing machines
AMC for electronic punching machines
AMC for electronic data processing(EDP)


27


PUBLICATION AND ADVERTISEMENT
Advertisement for tender notice
Advertisement for recruitment
Advertisement for goodwill and sales promotion

SECURITY/EARNEST MONEY DEPOSITS AND PAYMENT
Earnest money it is being deposited at the time of issuing tender form .it is refundable just after
the party is failure to obtain contract.
Security money-it is being deposited after finalization of contract and security deposits is
refundable after termination of contracts.

REDUCTION OF INCOME TAX &PAYMENT
TDS is being deducted from the parties payment under two section
1
st
-sec 194(c)
2
nd
-sec 194 (j)
Sec194(c)-ths sec. covers the payments of parties who are rendering their services with their own
means and cost .e.g. transporters bill.
(A) rate of TDS-2.06%
(B) Rate of TDS-1.03% is being deducted from the bill of the parties who do the work of
mediator or broker.\
e.g satya advertising agencies
sec 194(j)
TDS at the rate of-10.30%
This rate is applicable on the payment of professional, retainers and service consultants. Tax will
be deposited on before the 7
th
of the coming month.




















28


SALARY SECTION

As per the government rules and regulations the salary section calculates the salary of employees
by involving-:
DA (IDA)-industrial dearness allowance
DA is changed according to the survey made by consumer forum in several cities to know the
prices of various products.
Presently DA is 61.5% of basic

HRA( house rent allowance )
Classification of cities HRA
A-1(population>50 lac) 30% of basic pay
A,B-1,B-2(population between 20-50 lac) 15% of basic pay
C (population between 10-20 lac) 7.5% of basic pay
Unclassified (below 10 lac) 5% of basic pay

CCA(city compensatory allowance)



Washing allowance Rs 100/- per month
Canteen allowance Rs 400/-per month
Children education allowance
Attendance award Rs100 for 100% attendence



PROVIDEND FUND SECTION

UP/4882/2612 code given by PF Commissioner to BPCL.
P.F no up/4882/2612
12% is cut down from individual salary same amount is added to a/c which is provided by
company.
Contribution involved in the separate a/c of employee:
(1) Employee contribution
(2) Employer contribution
(3) Voluntary provident fund
VPF is a/c to the will of employee which is provided by company
Randomly .maximum limit that can be cut down 8000/- or 96000 per year.
In last two month Feb. &mar individual can exceed the amount 8000/- to maintain
96000/- in that year
8.33% or Rs 541/- whichever is lower one is cut from the 12% of the salary then we get
the amount

29


Types of loan

Non refundable
Condition 1- 90% of the amount is provided
Condition2-(basic+DA)*36

Refundable
Condition 1- 90% of the amount is provided after 10 year of service if taken 75%provided only
refundable
Condition 2-(basic + DA)*6

Deduction
Provident fund -12% of basic +DA
8.25% interest on PF
Voluntary provident fund
Max 8000/- can be deducted as VPF
Income tax deduction
Bus charge
GLIC/LIC Deduction


MEDICAL SECTION

Medical section of finance department provides financial help for medical facilities to the
employee and their dependents.

In the month of April 95% of the basic payment is provided to the employee for normal disease.
For each month=95%of the basic
12
Following are the hospital in which financial help is provided:
(1)Srijan vatsalya hospital pvt.ltd
(2) Akshay vat and trama hospital.
(3) saraswati heart care
(4)Nazareth hospital.
(5) government hospitals

FUNCTIONING OF MARKETING PURCHASE DEPARTMENT OF BPCL

(1)REQUIREMENT OF CUSTOMER
(a) directly from customers
(b) Through internet.

30


(c) Print media.
(d) Consultants.
(e) Lump sum turn key vendor.

(2)ACTION BY MARKETING
(a) We get registered.
(b) On submission of enquiry from customer we analyze the specification
Technical details and commercial details.
(c) techno-commercial offer is made and tender/bid/offer.
(d) The technical scruting is done by the customer and technically qualified parties short
listed for price bid openings.
(e) The price bid is open and purchase order is placed to the lowest bidder.


PURCHASE
Material required for direct production or non production is purchased by purchase department
of BPCL.
There are two categories of material:
(1) metallic
(2) nonmetallic

Two group in purchase:
(1) linked to direct production
(2) linked to non production

FUNCTION OF PURCHASE
D.P.I (departmental purchase indent)
Checking availability of material in store house.
Accurate information in purchase
Enquiry letter (to the vendors)
Competitive statement
Final order





31



Chapter-2: Literature review

OVER VIEW ............................................................................................. Error! Bookmark not defined.
CONCEPT ................................................................................................ Error! Bookmark not defined.
AN ANALYSIS OF WORKING CAPITAL MANAGEMENT RESULTS ACROSS INDUSTRIES Error! Bookmark
not defined.










OVER VIEW

Working capital policy refers to the firm's policies regarding 1) target levels for each category of
current operating assets and liabilities, and 2) how current assets will be financed. Generally
good working capital policy (i.e. under conditions of certainty) is considered to be one in which
holdings of cash, securities, inventories, fixed assets, and accounts payables are minimized.

The level of accounts receivables should be used as a means of stimulating sales and other
income. Previous literature on working capital management has found a negative association,
overall, between level of working capital and operating performance as measured by operating
returns and operating margins (Peterson and Rajan, 1997). Under conditions of certainty (i.e.

32


sales, costs, lead times, payment periods, and so on, are known), firms have little reason to hold
more working capital than a minimum level.

CONCEPT

Working capital occupies a peculiar position in the capital structure of a company. The
decision as to the adequacy of working capital is a complicated and yet a very important
decision.
Working capital is the life-blood of all types of enterprises, manufacturing and trading both. It is
constantly required to buy raw materials for payment of wages and other day-to-day expenses.
Without adequate working capital, manufacturing operations will be crippled. For trading
enterprises, the capacity to stock a variety of goods for sale depends upon its working capital. It
is a base on which all the activities of business enterprise depend. Many companies still under
estimate the importance of working capital management as a lever for freeing up cash from
inventory, accounts receivable, and accounts payable. By effectively managing
these components, companies can sharply reduce their dependence on outside funding and can
use the released cash for further investments or acquisitions. This will not only lead to more
financial flexibility, but also create value and have a strong impact on a companys enterprise
value by reducing capital employed and thus increasing asset productivity.
High working capital ratios often mean that too much money is tied up in receivables and
inventories. Typically, the knee-jerk reaction to this problem is to apply the big squeeze by
aggressively collecting receivables, ruthlessly delaying payments to suppliers and cutting
inventories across the board. But that only attacks the symptoms of working capital issues, not
the root causes. A more effective approach is to fundamentally rethink and streamline key
processes across the value chain. This will not only free up cash but lead to significant cost
reductions at the same time. Only those enterprises which have adequate working capital can
survive in times of depression. The investment in raw materials becomes long- term investments
during depression and cash flow declines due to fall in sale. In such circumstances only
enterprises with adequate working capital can survive.
Excessive working capital is equally unprofitable. The extra working capital is not utilized in
business operations and earns no profit for the firm. It results in unnecessary accumulation of
inventories, leading to inventory mishandling, waste, theft etc. The abundance of working capital
would lead to waste and inefficiency
Shortage of working capital funds renders the firm unable to avail attractive credit opportunities
etc.
The firm loses its reputation when it is not in a position to honor its short term obligations. As a
result, the firm faces tight credit terms. It stagnates growth.

Definition:-
1.According to Guttmann & Dougall:- Working capital is defined as current assets minus
current liabilities.
A positive position means that a company is able to support its day-to-day operations. i.e. to
serve both maturing short-term debt and upcoming operational expenses.

33


2. According to Park & Gladson:-
The excess of current assets of a business (i.e. cash, accounts receivables, inventories) over
current items owned to employees and others (such as salaries & wages payable, accounts
payable, taxes owned to government)
Working capital like many other accounting terms and financial terms has been used by
different people in different senses.
One school of thought believes that, as all capital resources available to a business organization
From shareholders, bondholders, and creditors (secured and unsecured) works up in the business
activities to generate revenues and facilitate future expansion and growth; they are to be
considered as working capital.

Another school of thought links working capital with current assets and current liabilities.
According to them, the excess of current assets over current liabilities is to be rightly considered
as the working capital of a business organization.
According to Shubin working capital is the amount of funds necessary to cover the cost of
operating the enterprise. Working capital in a going concern is a revolving (circulating fund), it
consists of cash receipts from sales which are used to cover the cost of current operations.
Circulating capital means current assets of the company that are changed in the ordinary course
of business from one form to another, as for example from cash to inventories, inventories to
receivables and receivables to cash.
Working capital is descriptive of that capital which is not fixed. But, the more common use of
working capital is to consider it as the difference between the current assets and the current
liabilities.
Current assets and current liabilities are assets and liabilities which arise in the course of
business. The WC demonstrates the amount of liquid assets that are available to sustain and build
the business by measuring companys efficiency and short-term financial health. As such, it
carries great value to those who might be interested in investing in business or even purchasing
it.
Working capital, also known as net working capital, is a measurement of a businesss current
assets, after subtracting its short-term liabilities, typically short term. Sometimes referred to as
operating capital, it is a valuation of the assets that a business or organization has available to
manage and build the business. Generally speaking, companies with higher amounts of working
capital are better positioned for success because they have the liquid assets that are essential to
expand their business operations when required.
Characteristics of Working Capital
Working capital is the life blood and nerve center of a business. Just as circulation of blood is
essential in the human body for maintaining life, working capital is very essential to maintain the
smooth running of a business. No business can run successfully without an adequate amount of
working capital.
The features of working capital distinguishing it from the fixed capital are as follows:
1 Short term Needs:
Working capital is used to acquire current assets which get converted into cash in a short period.
In this respect it differs from fixed capital which represents funds locked in long term assets. The

34


duration of the working capital depends on the length of production process, the time that elapses
in the sale and the waiting period of the cash receipt.
2 Circular Movement:
Working capital is constantly converted into cash which again turns into working capital. This
process of conversion goes on continuously. The cash is used to purchase current assets and
when the goods are produced and sold out; those current assets are transformed into cash. Thus it
moves in a circular away. That is why working capital is also described as circulating capital.
3 An Element of Permanency:
Though working capital is a short term capital, it is required always and forever. As stated
before, working capital is necessary to continue the productive activity of the enterprise. Hence
so long as production continues, the enterprise will constantly remain in need of working capital.
The working capital that is required permanently is called permanent or regular working
capital.
4 An Element of Fluctuation:
Though the requirement of working capital is felt permanently, its requirement fluctuates more
widely than that of fixed capital. The requirement of working capital varies directly with the
level of production. It varies with the variation of the purchase and sale policy; price level and
the level of demand also. The portion of working capital that changes with production, sale, price
etc. is called variable working capital.
5 Liquidity:
Working capital is more liquid than fixed capital. If need arises, working capital can be
converted into cash within a short period and without much loss. A company in need of cash can
get it through the conversion of its working capital by insisting on quick recovery of its bills
receivable and by expediting sales of its product. It is due to this trait of working capital that the
companies with a larger amount of working capital feel more secure.
6 Less Risky:
Funds invested in fixed assets get locked up for a long period of time and can not be recovered
easily.
There is also a danger of fixed assets like machinery getting obsolete due to technological
innovations.
Hence investment in fixed capital is comparatively more risky. As against this, investment in
current assets is less risky as it is a short term investment. Working capital involves more of
physical risk only, and that too is limited. Moreover, working capital gets converted into cash
again and again; therefore, it is free from the risk arising out of technological changes.
7 Special Accounting System not needed:
Since fixed capital is invested in long term assets, it becomes necessary to adopt various systems
of estimating depreciation. On the other hand working capital is invested in short term assets
which last
for one year only. Hence it is not necessary to adopt special accounting system for them.
Among the most important items of working capital are levels of inventory, accounts receivable,
and accounts payable. Working capital can be expressed as a positive or a negative number.
When a company has more debts than current assets, it has negative working capital;
When current assets outweigh debts, a company has positive working capital.
A company will try to manage cash by:

35


Identifying the cash balance that allows it to meet day-to-day expenses but minimizes the cost
of holding cash; Finding the level of inventory that allows for continuous production but lessens
the investment in raw materials and reduces reordering costs;
Identifying the appropriate source of financing, given the cash-conversion cycle. It may be
necessary to use a bank loan or overdraft. However, inventory is preferably financed by credit
arranged with the supplier. If a company is not operating efficiently, this will show up as an
increase in the working capital. This can be judged by comparing the amounts of working capital
from one period to another. Slow collection and inventory turnover may signal an underlying
problem in the companys operations.
Advantages
Proper management of working capital gives a firm the assurance that it is able to continue its
operations and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.
Disadvantages
If a companys current assets do not exceed its current liabilities, then it may run into trouble
paying back creditors in the short term.
A declining working-capital ratio over a longer time period could also be a red flag that merits
further analysis. For example, it could be that the companys sales volumes are decreasing and,
as a result, its accounts receivable are diminishing.













FACTORS INFLUENCING WORKING CAPITAL NEED OF WORKING CAPITAL

Working capital is among the many important things that contribute to the success of a business.
Without it, a business may cease to function properly or at all. Not only does a lack of working
capital render a company unable to build and grow, but it may also leave a company with too
little cash to pay its short-term obligations. Simply put, a company with a very low amount of
working capital may be at risk of running out of money.
When a company has too little working capital, it can face financial difficulties and may even be
forced toward bankruptcy. This is true of both very small companies and billion-dollar
organizations.

36


A company with this problem may pay creditors late or even skip payments. It may borrow
money in an attempt to remain afloat. If late payments have affected the companys credit rating,
it may have difficulty obtaining a loan at an affordable interest rate.
The need for working capital gross or current assets cannot be over emphasized. As already
observed, the objective of financial decision making is to maximize the shareholders wealth. To
achieve this, it is necessary to generate sufficient profits can be earned will naturally depend
upon the magnitude of the sales among other things but sales can not convert into cash. There is
a need for working capital in the form of current assets to deal with the problem arising out of
lack of immediate realization of cash against goods sold. Therefore sufficient working capital is
necessary to sustain sales activity. Technically this is refers to operating or cash cycle.
CONCEPT OF WORKING CAPITAL
There are two concepts of working capital:
1. Gross working capital
2. Net working capital

GROSSW WORKING CAPITAL

The gross working capital is the capital invested in the total current assets of the
enterprises. Current assets are those Assets which can convert in to cash within a short
period normally one accounting year.
Constituents of Current Assets.
71
Current assets are assets which are expected to be sold or otherwise used within one fiscal year.
Typically, current assets include cash, cash equivalents, accounts receivable, inventory, prepaid
accounts which will be used within a year, and short-term investments.
1 Cash in hand and cash at bank
2 Bills receivables/Sundry debtors
3 Short term loans and advances.
4 Inventories of stock as:
Raw material
Work in process
Stores and spares
Finished goods
Temporary investment of surplus funds.
Prepaid expenses
Accrued incomes.
Marketable securities.

NETWORKING CAPITAL

In a narrow sense, the term working capital refers to the net working capital. Net working
capital is the excess of current assets over current liability
NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.

37


Net working capital refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders which are expected to mature for payment within an
accounting
year and include creditors, bills payable and outstanding expenses. Net working capital can be
positive or negative
Constituents of Current liabilities
Current liabilities are considered as liabilities of the business that are to be settled in cash within
the fiscal year. Current liabilities include accounts payable for goods, services or supplies, short-
term loans, long-term loans with maturity within one year, dividends and interest payable, or
accrued liabilities such as accrued taxes.
1. Accrued or outstanding expenses.
2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation, if it does not amount to appropriation of profit.
6. Bills payable.
7. Sundry creditors.
The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital. Both the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working capital for the following
reasons:
1. It enables the enterprise to provide correct amount of working capital at correct time.
2. Every management is more interested in total current assets with which it has to operate then
the source from where it is made available.
3. It take into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
4. This concept is also useful in determining the rate of return on investments in working capital.
The net working capital concept, however, is also important for following reasons:
1. It is qualitative concept, which indicates the firms ability to meet to its operating expenses
and short-term liabilities.
2. IT indicates the margin of protection available to the short term creditors.
3. It is an indicator of the financial soundness of enterprises.
4. It suggests the need of financing a part of working capital requirement out of the permanent
sources of funds.
Working capital, on the one hand, can be seen as a metric for evaluating a companys operating
liquidity. A positive working capital position indicates that a company can meet its short-term
obligations. On the other hand, a companys working capital position signals its operating
efficiency.
Comparably high working capital levels may indicate that too much money is tied up in the
business.
The most important positions for effective working capital management are inventory, accounts
receivable, and accounts payable. Depending on the industry and business, prepayments received
from customers and prepayments paid to suppliers may also play an important role in the

38


companys cash flow. Excess cash and no operational items may be excluded from the
calculation for better comparison.

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:
On the basis of concept.
On the basis of time.
On the basis of concept working capital can be classified as gross working capital and net
working capital. On the basis of time, working capital may be classified as:
Permanent or fixed working capital.
Temporary or variable working capital

A-Permanent OR Fixed Working Capital.
The operating cycle is a continuous feature in almost all the going concerns and therefore creates
the need for working capital and their efficient management. However the magnitude of working
capital required will not be constant, but will fluctuate. At any time, there is always a minimum
level of current assets which is constantly and continuously required by a business unit to carry
on its operations. This minimum amount of current assets, which is required on a continuous and
uninterrupted basis, is after referred to as fixed or permanent working capital. This type of
working capital should be financed (along with other fixed assets) out of long term funds of the
unit. However in practice, a portion of these requirements also is met through short term
borrowings from banks and suppliers credit.
Permanent Working Capital
The amount of current assets required to meet a firms long-term minimum needs are called
Permanent current assets.
For e.g., In a manufacturing unit, basic raw materials required for production has to be available
at all times and this has to be financed without any disturbance.
B-Temporary OR Variable Working Capital.
Any amount over and above the permanent level of working capital is variable, temporary or
fluctuating working capital. This type of working capital is generally financed from short term
sources of finance such as bank credit because this amount is not permanently required and is
usually paid back during off season or after the contingency. As the name implies, the level of
fluctuating working capital keeps on fluctuating depending on the needs of the unit unlike the
permanent working capital which remains constant over a period of time.
The Temporary or Variable working capital is the amount of working capital which is required to
meet the seasonal demands and some special exigencies. Variable working capital can further be
classified as Seasonal Working Capital and Special Working Capital. The capital required to
meet the seasonal need of the enterprise is called seasonal working capital. Special working
capital is that part of working capital which is required to meet special exigencies such as
launching of extensive marketing for conducting research, etc.
Temporary working capital differs from Permanent working capital in the sense that is required
for short periods and cannot be permanently employed gainfully in the business.
Temporary Working Capital

39


DETERMINANTS OF WORKING CAPITAL
Working capital management is an indispensable functional area of management. However the
total working capital requirements of the firm are influenced by the large number of factors. It
may however be added that these factors affect differently to the different units and these keep
varying from time to time. In general, the determinants of working capital which are common to
all organizations can be summarized as under:
Nature of Business
This is one of the main factors. Usually in trading businesses the working capital needs are
higher as most of their investment is concentrated in stock or inventory. Manufacturing
businesses also need a good amount of working capital to meet their production requirements.
Whereas, those companies that sell services and not goods, on a cash basis require least working
capital because there is no requirement on their part to maintain heavy inventories.
Size of Business
In very small company the working capital requirement is quit high due to high overhead, higher
buying and selling cost etc. as such medium size business positively has edge over the small
companies. But if the business start growing after certain limit, the working capital requirements
may adversely affect by the increasing size.
Credit Terms / Credit Policy
Some time due to competition or custom, it may be necessary for the company to extend more
and more credit to customers, as result which more and more amount is locked up in debtors or
bills receivables which increase the working capital requirement. On the other hand, in the case
of purchase, if the credit is offered by suppliers of goods and services, a part of working capital
requirement may be financed by them, but it is necessary to purchase on cash basis, the working
capital requirement will be higher.
Credit terms greatly influence working capital needs. If terms are:
buy on credit and sell by cash, working capital is lower
buy on credit and sell on credit, working capital is medium
buy on cash and sell on cash, working capital is medium
buy on cash and sell on credit, working capital is higher.
Prevailing trade practices and changing economic condition do generally exert greater influence
on the credit policy of concern. A liberal credit policy if adopted more trade debtors would result
and when the same is tightened, size of debtors gets slim.
Credit periods also influence the size and composition of working capital. When longer credit
period is allowed to debtors as against the one extended to the firm by its creditors, more
working capital is needed and vice versa.
Collection policy is another influencing factor. A stringent collection policy might not only deter
away some credit customers, but also force the existing customers to be prompt in settling dues
resulting in lower level of working capital. The opposite holds well with a liberal collection
policy.
Collection procedure also influences the working capital needs. A decentralized collection of
dues from customers and centralized payments to suppliers shall reduce the size of working
capital.

40


Centralized collections and centralized payments would lead to moderate level of working
capital. But with centralized collections and decentralized payments, the working capital need
would be the highest.
Seasonality
Seasonality of Production
Agriculture and food processing and preservation industries have a seasonal production. During
seasons, when production activities are in their peak, working capital need is high.
Seasonality in supply of raw materials
This also affects the size of working capital. Industries that use raw materials which are available
during seasons only, have to buy and stock those raw materials. They cannot afford to buy these
items in a phased way, since either supplies would get reduced or prices would be higher. Also,
from the point of view of quality of raw materials, it pays to buy in bulk during the seasons.
Hence the high level of working capital needed when season exists for raw materials.
Seasonality of demand for finished goods
In case of products like umbrella, rain-coats and other seasonal items, the demand is high during
peak seasons. But the production of these items has to be continuous throughout the year to meet
the high
demand during peak seasons. Thus, working capital requirement would be higher.

Business Trade Cycle
Trade cycle refers to the periodic turns in business opportunities from extremely peak levels, via
a slackening to extremely tough levels and from there, via a recovery phase to peak levels, thus
completing a business cycle. There are 4 phases of trade cycle.
Boom Period more business, more production, more working capital.
Depression period less business, less production, less working capital.
Recession period slackening business, stock pile-up, more working capital.
Recovery period recouping business, stock speedily converts to sales, less working capital.
Inflation
Under inflationary conditions generally working capital increases, since with rising prices
demand reduces resulting in stock pile-up and consequent increase in working capital.
Length of Production cycle
The time lapse between feeding of raw material into the machine and obtaining the finished
goods out from the machine is what is described as the length of manufacturing process. It is
otherwise known as conversion time. Longer this time period, higher is the volume and value of
work-in-progress and hence higher the requirement of working capital and vice versa.
System of Production process
If capital intensive, high-technology automated system is adopted for production, more
investment in fixed assets and less investment in current assets are involved. Also, the
conversion time is likely to be lower, resulting in further drop in the level of working capital. On
the other hand, if labor intensive technology is adopted, less investment in fixed assets and more
investment in current assets which would lead to higher requirement of working capital.
Growth and expansion plans
Growth and expansion industries need more working capital than those that are static.
Profitability

41


The profitability of the business may be vary in each and every individual case, which is in turn
its depend on numerous factors, but high profitability will positively reduce the strain on
working capital requirement of the company, because the profits to the extend that they earned in
cash may be used to meet the working capital requirement of the company.
Operating efficiency
If the business is carried on more efficiently, it can operate in profits which may reduce the strain
on working capital; it may ensure proper utilization of existing resources by eliminating the
waste and improved coordination etc.
Apart from the above factors, dividend policy, depreciation policy, price level changes, operating
efficiency and government regulations also influence the level and the size of working capital.














DEFINITION:

Working capital, also known as "WC", is a financial metric which represents operating liquidity
available to a business. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital. It is calculated as current assets minus current liabilities. If
current assets are less than current liabilities, an entity has a working capital deficiency, also
called a working capital deficit. Net working capital is working capital minus cash (which is a
current asset) and minus interest bearing liabilities (i.e. short term debt). It is a derivation of

42


working capital, that is commonly used in valuation techniques such as DCFs (Discounted cash
flows).

Working Capital = Current Assets Current Liabilities

A company can be endowed with assets and profitability but short of liquidity if its assets cannot
readily be converted into cash. Positive working capital is required to ensure that a firm is able
to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt
and upcoming operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable and cash.

CALCULATION OF WORKING CAPITAL
Current assets and current liabilities include three accounts which are of special importance.
These accounts represent the areas of the business where managers have the most direct impact:
accounts receivable (current asset)
inventory (current assets), and
accounts payable (current liability)
The current portion of debt (payable within 12 months) is critical, because it represents a short-
term claim to current assets and is often secured by long term assets. Common types of short-
term debt are bank loans and lines of credit.
An increase in working capital indicates that the business has either increased current assets (that
is has increased its receivables, or other current assets) or has decreased current liabilities, for
example has paid off some short-term creditors.
Implications on M&A: The common commercial definition of working capital for the purpose
of a working capital adjustment in an M&A transaction (i.e. for a working capital adjustment
mechanism in a sale and purchase agreement) is equal to:
Current Assets - Current Liabilities excluding deferred tax assets/liabilities, excess cash, surplus
assets and/or deposit balances.
Cash balance items often attract a one-for-one purchase price adjustment
WORKING CAPITAL MANAGEMENT
Decisions relating to working capital and short term financing are referred to as working capital
management. These involve managing the relationship between a firm's short-term assets and its

43


short-term liabilities. The goal of working capital management is to ensure that the firm is able to
continue its operations and that it has sufficient cash flow to satisfy both maturing short-term
debt and upcoming operational expenses.

By definition, working capital management entails short term decisions - generally, relating to
the next one year period - which are "reversible". These decisions are therefore not taken on the
same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based
on cash flows and / or profitability
One measure of cash flow is provided by the cash conversion cycle - the net number of days
from the outlay of cash for raw material to receiving payment from the customer. As a
management tool, this metric makes explicit the inter-relatedness of decisions relating to
inventories, accounts receivable and payable, and cash. Because this number effectively
corresponds to the time that the firm's cash is tied up in operations and unavailable for other
activities, management generally aims at a low net count
In this context, the most useful measure of profitability is Return on capital (ROC). The
result is shown as a percentage, determined by dividing relevant income for the 12
months by capital employed; Return on equity (ROE) shows this result for the firm's
shareholders. Firm value is enhanced when, and if, the return on capital, which results
from working capital management, exceeds the cost of capital, which results from capital
investment decisions as above. ROC measures are therefore useful as a management tool,
in that they link short-term policy with long-term decision making. See Economic value
added (EVA).

Guided by the above criteria, management will use a combination of policies and techniques for
the management of working capital. These policies aim at managing the current assets (generally
cash and cash equivalents, inventories and debtors) and the short term financing, such that cash
flows and returns are acceptable.
Cash management. Identify the cash balance which allows for the business to meet day to
day expenses, but reduces cash holding costs.
Inventory management. Identify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials - and minimizes reordering costs -
and hence increases cash flow; see Supply chain management; Just In Time (JIT);
Economic order quantity (EOQ); Economic production quantity
Debtors management. Identify the appropriate credit policy, i.e. credit terms which will
attract customers, such that any impact on cash flows and the cash conversion cycle will
be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts
and allowances.

44


Short term financing. Identify the appropriate source of financing, given the cash
conversion cycle: the inventory is ideally financed by credit granted by the supplier;
however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors
to cash" through "factoring".


AN ANALYSIS OF WORKING CAPITAL MANAGEMENT RESULTS ACROSS
INDUSTRIES

The importance of efficient working capital management (WCM) is indisputable. Working
capital is the difference between resources in cash or readily convertible into cash (Current
Assets) and organizational commitments for which cash will soon be required (Current
Liabilities). The objective of working capital management is to maintain the optimum balance of
each of the working capital components.
Business viability relies on the ability to effectively manage receivables, inventory, and
payables. Firms are able to reduce financing costs and/or increase the funds available for
expansion by minimizing the amount of funds tied up in current assets. Much managerial effort
is expended in bringing non-optimal levels of current assets and liabilities back toward optimal
levels. An optimal level would be one in which a balance is achieved between risk and
efficiency.

Many researchers have studied working capital from different views and in different
environments. The following are some useful research:

RELATED LITERATURE
62 The importance of working capital management is not new to the finance literature. Over
twenty years ago, Largay and Stickney (1980) reported that the then-recent bankruptcy of W.T.
Grant, a nationwide chain of department stores, should have been anticipated because the
corporation had been running a deficit cash flow from operations for eight of the last ten years of
its corporate life. As part of a study of the Fortune 500s financial management practices.
Following are the important views of scholars about working capital management.

1 GILBERT AND REICHERT (1995 ) :
Find that accounts receivable management models are used in 59 percent of these firms to
improve working capital projects, while inventory management models were used in 60 percent
of the companies. More recently, Farragher, Kleiman and Sahu (1999) find that 55 percent of
firms in the S&P Industrial index complete some form of a cash flow assessment, but did not
present insights regarding accounts receivable and inventory management, or the variations of
any current asset accounts or liability accounts across industries. Thus, mixed evidence exists
concerning the use of working capital management techniques. Theoretical determination of

45


optimal trade credit limits are the subject of many articles over the years (e.g., Schwartz 1974;
Scherr 1996), with scant attention paid to actual accounts receivable management. Across a
limited sample,

2 WEINRAUB AND VISSCHER (1998) :
Observe a tendency of firms with low levels of current ratios to also have low levels of current
liabilities. Simultaneously investigating accounts receivable and payable issues, Hill, Sartoris,
and Ferguson (1984) find differences in the way payment dates are defined. Payees define the
date of payment as the date payment is received, while payers view payment as the postmark
date. Additional WCM insight across firms, industries, and time can add to this body of research.
Maness and Zietlow (2002, 51, 496) presents two models of value creation that incorporate
effective short-term financial management activities. However, these models are generic models
and do not consider unique firm or industry influences. Maness and Zietlow discuss industry
influences in a short paragraph that includes the observation that, An industry a company is
located in may have more influence on that companys fortunes than overall GNP (2002, 507).


3 ELJELLY, 2004:
Elucidated that efficient liquidity management involves planning and controlling current assets
and current liabilities in such a manner that eliminates the risk of inability to meet due short-term
obligations and avoids excessive investment in these assets. The relation between profitability
and liquidity was examined, as measured by current ratio and cash gap (cash conversion cycle)
on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis.
The study found that the cash conversion cycle was of more importance as a measure of liquidity
than the current ratio that affects profitability. The size variable was found to have significant
effect on profitability at the industry level. The results were stable and had important
implications for liquidity management in various Saudi companies. First, it was clear that there
was a negative relationship between profitability and liquidity indicators such as current ratio
and cash gap in the Saudi sample examined. Second, the study also revealed that there was great
variation among industries with respect
to the significant measure of liquidity.




4 BERGAMI ROBERT (2007):
Analysis that that international trade transactions carry inherently more risk than domestic trade
transactions, because of differences in culture, business processes, laws and regulations. It is
therefore important for traders to ensure that payment is received for goods dispatched and that
the goods received and paid for comply with the contract of sale. One effective way of managing
these risks has been for traders to rely on the letter of credit as a payment method. However for
exporters in particular, the letter of credit has presented difficulties in meeting the compliance
requirements necessary for the payment to be triggered. The current rules that govern letter of

46


credit transactions(UCP 500) have been under review for the past three years and an updated set
of rules (UCP 600) is expected to be introduced on 1July 2007.
This paper focuses on the changes mooted for 2007and compares these main issues with the
existing rules and other associated guidelines and regulations governing this method of payment.
This paper considers the implication to changes of letter of credit transactions and the sharing of
risk. Firstly the paper provides some background to letters of credit, then comments on existing
literature and models, and subsequently an analysis of the most important changes to the existing
rules, before reaching a conclusion. The conclusion is that the UCP 600 have not paid enough
consideration to traders and service providers and are likely to engender an environment of
uncertainty for exporters in particular.















47






Chapter-3: Research Methodology

TYPES OF DATA COLLECTION ................................................................. Error! Bookmark not defined.
Analysis Used in Study: Descriptive analysis . ........................................ Error! Bookmark not defined.
Research Design ..................................................................................... Error! Bookmark not defined.
Data Collection ....................................................................................... Error! Bookmark not defined.
Limitations of the study ......................................................................... Error! Bookmark not defined.











48






TYPES OF DATA COLLECTION

PRIMARY DATA
The project is based on primary data collected through personal interview of the head of account
department and other concerned staff member of finance department.
SECONDARY DATA
The project report is also based on information collected through three year annual report and
balance sheet of the company. Supported by various books and internet sites.
Analysis Used in Study: Descriptive analysis .

Descriptive Statistics are used to describe the basic features of the data in a study. They provide
simple summaries about the sample and the measures. Together with simple graphics analysis,
they form the basis of virtually every quantitative analysis of data. With descriptive statistics we
are simply describing what is, what the data shows.

Research Design

STEP 1 - To study the Financial Statement of BPCL
STEP 2 Data Analysis of working capital through Estimation of Working Capital.
STEP 3 Analysis of Inventory Management of BPCL
STEP 4 Comparison of base year datas with previous years datas.






49




Data Collection

The information is collected through the Primary Source like:-
Interviewing the employees of the department.
Getting information from MIS department.
Discussion with the head of the Finance department and Procurement department.

The Data was collected from following Secondary Sources like:-
Corporate department
Procurement department
Finance department
Logistic Department
Limitations of the study

Following limitations were encountered while preparing this project:
1) Limited data:-
This project has completed with annual reports; it just constitutes one part of data collection i.e.
secondary. There were limitations for primary data collection because of confidentiality.
2) Limited period:-
This project is based on five year annual reports. Conclusions and recommendations are based on
such limited data. The trend of last five year may or may not reflect the real working capital
position of the company
3) Limited area:-
Also it was difficult to collect the data regarding the competitors and their financial information.
Industry figures were also difficult to get.


50


Chapter-4: Research Findings & Analysis

AGGREGATE SIZE OF WORKING CAPITAL ............................................... Error! Bookmark not defined.
CURRENT ASSETS ................................................................................... Error! Bookmark not defined.
CURRENT LIABILITIES.............................................................................. Error! Bookmark not defined.
OPERATING CYCLE ANALYSIS ................................................................. Error! Bookmark not defined.
CHANGES IN WORKING CAPITAL MANAGEMENT .................................. Error! Bookmark not defined.
ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL ............. Error! Bookmark not defined.
CURRENT RATIO ..................................................................................... Error! Bookmark not defined.
QUICK RATIO .......................................................................................... Error! Bookmark not defined.
MIXED OR COMPOSITE RATIO ............................................................... Error! Bookmark not defined.
INVENTORY TURNOVER RATIO: ............................................................. Error! Bookmark not defined.
RECEIVABLE TURNOVER RATIO .............................................................. Error! Bookmark not defined.
CREDITORS TURNOVER RATIO ............................................................... Error! Bookmark not defined.
CURRENT ASSETS TURNOVER RATIO ..................................................... Error! Bookmark not defined.
CAPITAL TURNOVER RATIO .................................................................... Error! Bookmark not defined.
FIXED ASSETS RATIO ............................................................................... Error! Bookmark not defined.
GROSS MARGIN RATIO/GROSS PROFIT RATIO ....................................... Error! Bookmark not defined.
DIRECT WAGE EXPENSE RATIO .............................................................. Error! Bookmark not defined.
STOCK TO WORKING RATIO ................................................................... Error! Bookmark not defined.
EMPLOYEE REMUNERATION RATIO ....................................................... Error! Bookmark not defined.
TAX PROVISION RATIO ........................................................................... Error! Bookmark not defined.
SELLING AND DISTRIBUTION RATIO ....................................................... Error! Bookmark not defined.
PROPRIETARY OR NET WORTH RATIO ................................................... Error! Bookmark not defined.
NET FIXED ASSETS TO NET WORTH RATIO ............................................. Error! Bookmark not defined.




51


AGGREGATE SIZE OF WORKING CAPITAL

The magnitude of working capital is the function of current assets and the current liabilities of a
company. The aggregate size of the working capital is given below:
Working Capital Table
(Rs. In Lakhs)
YEAR Current assets Current liabilities NET WORKING
CAPITAL
2011-12 18693.18 7553.53 11139.7
2010-11 23735.92 12489.14 11246.78
2009-10 29942.21 12091.24 17851.0


The above figure shows that current assets were constantly decreasing. It was 29942.21 in the
year 2009-2010 and 18693.18 in the year 2011-12 i.e.10 times less. In 2011-12 the major
decrease was in inventories, cash and bank balance and short term loans and advances. Similarly
the current liabilities also decrease from 2010-11 to 2011-12 by 4935.61.Thus the net working
capital also has decreasing trend during the study period.



52


ANALYSIS OF CURRENT ASSETS AND CURENT LIABILITIES
CURRENT ASSETS

A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable,
inventory, marketable securities, prepaid expenses, and other assets that could be converted to
cash in less than one year. A company's creditors will often be interested in how much that
company has in current assets, since these assets can be easily liquidated in case the company
goes bankrupt. In addition, current assets are important to most companies as a source of funds
for day-to-day operations. Analysis of current assets components enable one to examine in which
components the working capital fund has locked. A large tie up of funds in inventories affects
the profitability of the business or the major portion of current assets is made up cash alone, the
profitability will be decreased because cash is non-earning asset.
A-Current Assets, Loans & Advances: (2011-12)
INVENTORIES 5484.88
TRADE RECEIVABLES 8477.81
CASH AND CASH EQUIVALENTS 3299.24
SHORT TERM LANS AND ADVANCES 1431.25
TOTAL CURRENT ASSETS 18693.18

B-Current Assets, Loans & Advances: (2010-11)
INVENTORIES 5175.84
SUNDRY DEBTORS 7949.31
CASH AND BANK BALANCES 7471.11
SHORT TERM LANS AND ADVANCES 3139.66

TOTAL 23735.92

C-Current Assets, Loans & Advances: (2009-10)
INVENTORIES 6712.93
SUNDRY DEBTORS 8280.89
CASH AND BANK BALANCES 11171.28
LOANS AND ADVANCES 3777.11
TOTAL CURRENT ASSETS 29942.21


53




OBSERVATIONS
It was observed that the size of current assets is decreasing continuously with the decrease in
sales. The excess of current assets shows positive liquidity position of the firm and vice versa.
We can see in each year current assets are going down. Compared to 2009-10 the current assets
in 2011-12 there is a decrement from 29942.21 to 18693.18. In 2011-12 the major decrease was
in inventories, cash and bank balance and short term loans and advances.










54


CURRENT LIABILITIES

Current liabilities are debts, accounts payable, interest due, trade credit, loans, and other
obligations that are due and payable within one year. Current liabilities are calculated and
identified on a business' balance sheet. Current liabilities as a total are information that is used as
one measure of the financial condition of a company, especially in association with current assets
to calculate the level of working capital.

A- Current Liabilities:2011-12
SHORT TERM BORROWINGS 0.00
TRADE PAYABLES 2559.50
OTHER CURRENT LIABILITIES 4449.78
SHORT TERM PROVISIONS 547.25
TOTAL CURRENT LIABILITIES 7553.53


B- Current Liabilities:2010-11
LIABILITIES 6318.48
PROVISIONS 6530.66
TOTAL CURRENT LIABILITIES 12489.14


C- Current Liabilities:2009-10
LIABILITIES 7814.57
PROVISIONS 4276.67
TOTAL CURRENT LIABILITIES 12091.24


55






OBSERVATION
Current liabilities show a growth till 2010-11 because the company creates credit in the market
by good transaction. But the current liabilities also decreased from 2010-11 to 2011-12 by
4935.61i.e from 1209.24 to 7553.53. Provisions show a growing trend and the huge amount is
being kept on these provisions. Though the profits of the company are increased, income tax has
also increased. Therefore there is a great need of maintaining proper provisions. But in 2011-12
it has gone down to 547.25 from 6530.66.







56


OPERATING CYCLE ANALYSIS
Operating cycle refers to the time period which starts from the raw material purchases and ends
with realization of receivables.so it is total time gap between raw material purchases to total
debtors collection. This is also known as working capital cycle. Operating cycle is therefore
expressed in terms of months or weeks or days. The higher the operating cycle period, higher
the working capital requirement.it comprises of raw material conversion period,WIP conversion
period,FG conversion period and debtors conversion period and creditors period. The basic
reason for calculating operating cycle is to find out the means for reducing the duration of
operating cycle because if the duration of operating cycle would be less than working capital
requirement will be less.
CALCULATION OF OPERATING CYCLE OR WORKING CAPITAL CYCLE
Symbolically the duration of the working capital cycle can be put as follows: -
O=R+W+F+R-C
The gross operating cycle of a firm is equal to the length of the inventories and receivables
conversion Periods.

RMCP = Raw Material Conversion Period
WIPCP = WorkIn-Process Conversion Period
FGCP = Finished Goods Conversion Period
RCP = Receivables Conversion Period
CPP = Creditors Payment Period

However, a firm may acquire some resources on credit and thus defer payments for certain
period. In that case, Net Operating Cycle Period can be calculated as below:

Net Operating Cycle Period = Gross Operating Cycle Period Payable








57


Deferral period
1-OPERATING CYCLE ANALYSIS
a)Raw material conversion period
=Average raw material stock/average raw materials consumed during the year
YEAR Average raw material
stock
Average raw
materials consumed
during the year
RMCP
2012 5330.36 7058.61 0.755

2011 5944.385 9646.94 0.616
2010 6539.39 14968.31 0.436

b)Work in progress conversion period
=Average stock in progress/Average cost of production
YEAR Average stock in
progress
Average cost of
production
WPCP
2012 2819.46 14349.65 0.196
2011 2533.9 16385.53 0.154
2010 2210.02 19925.13 0.110

c)Finished goods conversion period
=Average finished goods inventory/Average cost of gods sold
YEAR Average finished
goods inventory
Average cost of
goods sold
FGCP
2012 505.94 14040.61 0.036
2011 550.33 17922.62 0.030
2010 389.62 19578.05 0.019






58


d)Debtors conversion peiod
=Days in year company operating/Debtors turnover
YEAR Days in year
company operating
Debtors turnover DCP
2012 300 1.79 167.59
2011 300 2.64 113.63
2010 300 3.27 91.74

e) Credit conversion peiod
=Days in year company operating/Creditors turnover
YEAR Days in year
company operating
Creditors turnover CCP
2012 300 2.768 108.69
2011 300 3.47 86.45
2010 300 5.39 55.65


GROSS OPERATING CYCLE PERIOD=
RMCP+FGCP+WPCP+CCP+DCP
2011-12=0.755+0.196+0.036+108.69+167.59
=277.267
2010-11=0.616+0.154+0.030+86.45+113.63
=200.88
2009-10=0.436+0.110+0.019+55.65+91.74
=147.955




59


CHANGES IN WORKING CAPITAL MANAGEMENT


ANALYSI S ON THE BASI S OF SCHEDULE OF CHANGES I N WORKI NG CAPI TAL
PARTICULARS 2009-10 2010-11 2011-12
A-CURRENT
ASSETS

INVENTORIES 6712.93 5175.84 5484.88
TRADE
RECEIVABLES
8280.89 7949.31 8477.81
CASH AND
CASH
EQUIVALENTS
11171.28 7471.11 3299.24
SHORT TERM
LoANS AND
ADVANCES
3777.11 3139.66 1431.25
TOTAL
CURRENT
ASSETS
29942.21 23735.92 18693.18
B-CURRENT
LIABILITIES

LIABILITIES 7814.57 6318.48 7009.28
PROVISIONS 4276.67 6530.66 547.25
TOTAL
CURRENT
LIABILITIES
12091.24 12489.14 7553.53
NET
WORKING
CAPITAL(A-B)
17850.97 11246.78 11139.65


As we have a look on the schedule of changes in working capital for BPCL over the years 2009-
10 to 2011-12,we find that,among the current assets,inventories,cash and cash equivalents,short
term loans and advances have shown a decrement from the year 2009-10 to the year 2011-
12.only sundry debtors have increased from 2010-11 to 2011-12 by 528.5.similarly among the
current liabilities, provisions have decreased from 2010-11 i.e 6530.66 to 2011-12i.e 547.25 and
liabilities have gone up to 7009.28 in the year 2011-12 as compared to the previous year.
Therefore the overall net working capitals have decreased.

60


ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL

INVENTORY ANALYSIS-
PARTICULARS 2009-10 2010-11 2011-12
RAW MATERIALS 7085.61 9646.94 14968.31
W.I.P 2819.46 2533.9 2210.02
FINISHED GOODS 505.94 550.33 389.62
TOTAL 10411.01 12731.17 17567.95

OBSERVATION
We can see an increasing pattern in inventories. We can see that the inventories have increased
from 2009-10i.e10411.01 to 2011-12 i.e 17567.95.By this growth we can say that the company
is growing. A company uses inventories when they have demand in the market.This is the
biggest reason for increase in inventories.
CASH AND BANK BALANCE ANALYSIS-
PARTICULARS 2009-10 2010-11 2011-12
CASH AND CASH
EQUIVALENTS
11171.28 7471.11 3299.24
TOTAL 11171.28 7471.11 3299.24

OBSERVATION
If we analyse the above table we find that it follows an decreasing trend. IN 2009-10 it had
maintained a huge amount of cash which gradually decreases in the year 2010-11 and 2011-12
from 7471.11 to 3299.24.This shows that the companys cash position was not that much good
which is not a good sign for the company.
SUNDRY DEBTORS ANALYSIS-
PARTICULARS 2009-10 2010-11 2011-12
TRADE
RECEIVABLES
8280.89 7949.31 8477.81
TOTAL 8280.89 7949.31 8477.81

OBSERVATION

61


If we analyse the above table we find that it follows an increasing as well as decreasing trend. IN
2009-10 debtors were high which gradually decreases in the year 2010-11 and again increased
in2011-12 from 7949.31 to 8477.81.A simple logic is that debtors increase only when sales
increases and if sales increases it is a a good sign for the company.

LOANS AND ADVANCES ANALYSIS-
PARTICULARS 2009-10 2010-11 2011-12
SHORT TERM
LoANS AND
ADVANCES
3777.11 3139.66 1431.25
TOTAL 3777.11 3139.66 1431.25

OBSERVATION-
We can easily see that the loans and advances are continuously decreasing from the year 2009-10
to 2011-12 ie from 3777.11 to 1431.25.This does not show a good sign for the expansion of the
business.
CURRENT LIABILITIES ANALYSIS-
Particulars 2009-10 2010-11 2011-12
LIABILITIES 7814.57 6318.48 7009.28
PROVISIONS 4276.67 6530.66 547.25
TOTAL 12091.24 12489.14 7553.53
OBSERVATION-
If we analyse the above table we can see that it follow an uneven trend in the sundry creditors
and in other liabilities. It has decreased in 2010-11 and again increased in 2011-12 from 6318.48
to 7009.28 because of the growth in other liabilities.
From the above table we can see that provisions show a growing trend and the huge amount is
being kept on these provisions. Though the profits of the company are increased, income tax has
also increased. Therefore there is a great need of maintaining proper provisions. But in 2011-12
it has gone down to 547.25 from 6530.66.



62


.
CURRENT RATIO

Current ratio may be defined as the relationship between current assets and current liabilities.
This ratio is also known as "working capital ratio". It is a measure of general liquidity and is
most widely used to make the analysis for short term financial position or liquidity of a firm. It is
calculated by dividing the total of the current assets by total of the current liabilities.
The ratio is mainly used to give an idea of the company's ability to pay back its short-term
liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher
the current ratio, the more capable the company is of paying its obligations. A ratio equal or near
to the thumb of rule of 2:1 i.e,current assets doule the current liabilities is considered to be
satisfactory.
Components:
The two basic components of this ratio are current assets and current liabilities.
Current assets include cash and those assets which can be easily converted into cash within a
short period of time, generally, one year, such as marketable securities or readily realizable
investments, bills receivables, sundry debtors, (excluding bad debts or provisions), inventories,
work in progress, etc. Prepaid expenses should also be included in current assets because they
represent payments made in advance which will not have to be paid in near future.
Current liabilities are those obligations which are payable within a short period of tie generally
one year and include outstanding expenses, bills payable, sundry creditors, bank overdraft,
accrued expenses, short term advances, income tax payable, dividend payable, etc.

[Current Ratio = Current Assets / Current Liabilities]
Calculation of Current Ratio
YEAR CURRENT ASSETS CURRENT
LIABILITIES
CURRENT RATIO
2012 18693.18 7553.53 2.4
2011 23735.92

12489.14 1.90
2010 29942.21 12091.24 2.47

Observations
The current ratio indicates the availability of funds to payment of current liabilities in the form of
current assets. The above table indicates that the current ratio was satisfactory in the year 2011-
12i.e 2.4 as compared to 2010-11 i.e 1.90.A higher ratio indicates that there were sufficient
assets available with the organization which can be converted in cash, without any reduction in
the value.: Generally, the higher the ratio, the more liquid the company is. This means the
company would have a better short-term financial standing to meet its debt obligations.

63


A low current ratio is can often be supported by a strong operating cash flow. On the other hand,
if a company is able to operate with a low current ratio, it means that the company is more
efficient about using its capital. Therefore, a low current ratio can lead to higher return of assets.
Generally speaking, the more liquid the current assets, the smaller the current ratio can be
without cause for concern. For most industrial companies, 1.5 is an acceptable current ratio.
QUICK RATIO


The quick ratio, defined also as the acid test ratio, reveals a company's ability to meet short-term
operating needs by using its liquid assets. Compared with the current ratio, the quick ratio is
more conservative because it does not include inventories which can sometimes be difficult to
liquidate. For lenders, the quick ratio is very helpful because it reveals a companys ability to pay
off under the worst possible condition.
Although the quick ratio gives investors a better picture of a companys ability to meet current
obligations the current ratio, investors should be aware that the quick ratio does not apply to the
handful of companies where inventory is almost immediately convertible into cash.

Quick Ratio Formula
Quick Ratio = (Current assets Inventories) / Current liabilities
Or
Quick assets / Current liabilities
Or
(Cash + Accounts Receivable + Cash equivalents) / Current liabilities

LIQUID/QUICK RATIO
YEAR LIQUID ASSETS CURRENT
LIABILITIES
LIQUID RATIO
2012 13208.3 7553.53 1.74
2011 18560

12489.14 1.48
2010 23229.28 12091.24
1.92

Observations

64


It can be clearly seen that the Quick ratio is not less than 1:1 which means that the company has
sufficient liquid balance for the payment of current liabilities. . If the quick ratio is greater than
one, there would seem to be no danger that the firm would not be able to meet its current
obligations. If the quick ratio is less than one, but the current ratio is considerably above one, the
status of the firm is more complex. The liquid ratio of 1:1 is supposed to be standard or ideal.


MIXED OR COMPOSITE RATIO

WORKING CAPITAL TURNOVER RATIO
It signifies that for an amount of sales, a relative amount of working capital is needed. If any
increase in sales contemplated working capital should be adequate and thus this ratio helps
management to maintain the adequate level of working capital. The ratio measures the efficiency
with which the working capital is being used by a firm. It may thus compute net working capital
turnover by dividing sales by working capital.


Working Capital Turnover Ratio = COGS/Net Working Capital
WORKING CAPITAL TURNOVER RATIO
=COGS/NET WORKING CAPITAL
YEAR COGS NET WORKING
CAPITAL
WCTR
2012 1404O.61 11139.65 1.26
2011 17922.62 11246.78 1.59
2010 19578.05 17850.97 1.09

We can see an increase in working capital turnover ratio from 2009-10 to 2010-11ie. From 1.09
to 1.59. High working capital ratio indicates the capability of the organization to achieve
maximum sales with the minimum investment in working capital. But in the year 2011-12 the
WC has gone down to 1.26% from 1.59% .

INVENTORY TURNOVER RATIO:

Inventory turnover ratio, defined as how many times the entire inventory of a company has been
sold during an accounting period, is a major factor to success in any business that holds

65


inventory. It shows how well a company manages its inventory levels and how frequently a
company replenishes its inventory
Average inventory and cost of goods sold are the two elements of this ratio. Average inventory is
calculated by adding the stock in the beginning and at the and of the period and dividing it by
two. In case of monthly balances of stock, all the monthly balances are added and the total is
divided by the number of months for which the average is calculated.
A low inventory turnover ratio shows that a company may be overstocking or deficiencies in the
product line or marketing effort. It is a sign of ineffective inventory management because
inventory usually has a zero rate of return and high storage cost
Although the first calculation is more frequently used, COGS (cost of goods sold) may be
substituted because sales are recorded at market value, while inventories are usually recorded at
cost. Also, average inventory may be used instead of the ending inventory level to minimize
seasonal factors.
This ratio should be compared against industry averages. A low turnover implies poor sales and,
therefore, excess inventory. A high ratio implies either strong sales or ineffective buying.
High inventory levels are unhealthy because they represent an investment with a rate of return of
zero. It also opens the company up to trouble should prices begin to fall.


Higher inventory turnover ratios are considered a positive indicator of effective inventory
management. However, a higher inventory turnover ratio does not always mean better
performance. It sometimes may indicate inadequate inventory level, which may result in
decrease in sales.

[Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost]
Inventory Turnover
YEAR COGS AVERAGE STOCK STR OR ITR
2012 1404O.61 5330.36 2.63
2011 17922.62 5944.385 3.01
2010 19578.05 6539.39 2.99

Observations
It was observed that the STR has increased from 2.99 to 3.01 in the year 2010-11. . In general, a
higher inventory turnover is better because inventories are the least liquid form of asset.
Whereas in2011-12 it has decreased to 2.63 from 3.01 A low inventory turnover ratio shows that
a company may be overstocking or deficiencies in the product line or marketing effort. It is a
sign of ineffective inventory management because inventory usually has a zero rate of return and
high storage cost.
Importance of Inventory Turnover:

66


If the company can quickly sell its inventory, then the Inventory Turnover will be higher.
Conversely, if the company cannot sell its inventory very well, then the Inventory Turnover will
be low. We have to watch this figure closely - if the Inventory Ratio climbs too high, then the
company may be keeping too little inventory. This could cause lost profits due to customer
orders that had to wait until inventory arrived.

RECEIVABLE TURNOVER RATIO
Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt
collection of a firm. In simple words it indicates the number of times average debtors
(receivable) are turned over during a year.
The two basic components of accounts receivable turnover ratio are net credit annual sales and
average trade debtors. The trade debtors for the purpose of this ratio include the amount of Trade
Debtors & Bills Receivables. The average receivables are found by adding the opening
receivables and closing balance of receivables and dividing the total by two. It should be noted
that provision for bad and doubtful debts should not be deducted since this may give an
impression that some amount of receivables has been collected. But when the information about
opening and closing balances of trade
debtors and credit sales is not available, then the debtors turnover ratio can be calculated by
dividing the total sales by the balance of debtors (inclusive of bills receivables) given
Formula of Debtors Turnover Ratio:
[Debtors Turnover Ratio = Net Credit Sales / Average Trade
YEAR TOTAL SALES AVERAGE
DEBTORS
DTR
2012 15215.3 8477.81 1.79
2011 21021.3 7949.31 2.64
2010 27111.8 8280.89 3.27
Observations
It was observed from receivable turnover ratio that it has been decreasing since 2009-10 to
2011-12 from 3.27 to 2.64 to 1.79. Low debtors turnover ratio implies inefficient management of
debtors or less liquid debtors
Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the
debtors are turned over a year. The higher the value of debtors turnover the more efficient is the
management of debtors or more liquid the debtors are.
Significance of the Ratio:
Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the
debtors are turned over a year. The higher the value of debtors turnover the more efficient is the
management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio
implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the
time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to
interpret the ratio as it may be different from firm to firm.


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CREDITORS TURNOVER RATIO


Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally a low CREDITORS TURNOVER RATIO implies favourable
since the firm enjoys lengthy credit period.
CREDITORS TURNOVER RATIO
= NET CREDIT PURCHASE/ AVERAGE CREDITORS
YEAR NET CREDIT
PURCHASE
AVERAGE
CREDITORS
CTR
2012 7085.61 2559.50 2.768
2011 9646.94 2773.30 3.47
2010 14968.31 2773.30 5.39

Observation
Generally a low creditors turnover ratio implies favorable since the firm enjoys lengthy credit
period.
Now if we analyses three years data we find that in the year 2009-10 the ratio was very high
which means that its position of creditors was not good in that year. The other years creditors
turnover ratio is in pretty good position. It follows a decreasing trend which is a good sign for the
company. Therefore we can say that it enjoys good credit facilities from the suppliers.

CURRENT ASSETS TURNOVER RATIO
Current Assets Turnover ratio shows the productivity of the company's current assets.
Current assets turnover ratio is calculated to know the firms efficiency of utilizing the current
assets. An analysis of this ratio over a period of time reflects working capital management of a
firm.
Current assets are a major component of the balance sheet and represent assets that are expected
to be sold or used, typically within the next 12 months. They are also an important measure of a
companys liquidity position. Current assets have become a very important factor in evaluating
the financial strength of a company, in the event of a weak economic environment or one of
lower demand. Many of the popular financial ratios will utilize the current assets when
performing analysis to gauge financial performance and stability.
Current Assets Turnover ratio, shows the productivity of the company's current assets
The formula is the following:
= turnover / average (current assets, other + stocks + debtors + cash & equivalents)
Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current
assets.

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Current assets includes the assets like inventories, sundry debtors, bills receivable, cash in hand
or bank, marketable securities, prepaid expenses and short term loans and advances. This ratio
includes the efficiency with which current assets turn into sales. A higher ratio implies a more
efficient use of funds thus high turnover ratio indicate to reduce the lock up of funds in current
assets. An analysis of
this ratio over a period of time reflects working capital management of a firm.
Current assets Turnover Ratio
= COGS/CURRENT ASSETS
YEAR COGS CA CATR
2012 1404O.61 18693.18 0.75
2011 17922.62 23735.92

0.75
2010 19578.05 29942.21 0.65

-Observations Turnover ratio was 0.65 in the year 2009-10 and increases to 0.75 in the year
2011 and 2012 respectively. A higher ratio implies a more efficient use of funds thus high
turnover ratio indicate to reduce the lock up of funds in current assets.
CAPITAL TURNOVER RATIO

=COGS/NET CAPITAL EMPLOYED
YEAR COGS NET CAPITAL
EMPLOYED
WTR
2012 1404O.61 15641.3 0.89
2011 17922.62 14589.7 1.22
2010 19578.05 19951.1 0.98
FIXED ASSETS TURNOVER RATIO
The fixed assets turnover ratio measures the efficiency with which the firm has been using its
fixed assets to generate sales.
=SALES/NET FIXED ASSETS
YEAR SALES NET FIXED
ASSETS
FATR
2012 15215.3 6424.06 2.36
2011 21021.3 6593.67 3.18
2010 27111.8 3157.16 8.58


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OBSERVATION
If we compare FATR of 2011-12 from previous years we will see that is a continuous decrease in
the fixed assets turnover ratio from 8.58 to 3.18 and finally to 2.36 in 20011-12.Generally high
fixed assets are preferred since they indicate a better efficiency in fixed assets utilization.
FIXED ASSETS RATIO

= FIXED ASSETS/CAPITAL EMPLOYED
YEAR FIXED ASSETS CAPITAL
EMPLOYED
FAR
2012 6424.06 15641.3 0.41
2011 6593.67 14589.7 0.45
2010 3157.16 19951.1 0.15

GROSS MARGIN RATIO/GROSS PROFIT RATIO

It can be used to compare the gross profit margin across similar businesses although there will
often be good reasons for any disparity.
=SALES-COGS/SALES
YEAR SALES-COGS SALES GMR
2012 1174.69 15215.3 0.07(7%)
2011 3098.68 21021.3 0.14(14%)
2010 7533.75 27111.8 0.27(27%)

OBSERVATION
We can easily see a tremendous downfall in gross margin ratio from 2009-10 to 2011-12 i.e from
27% to 7%.





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DIRECT WAGE EXPENSE RATIO

=DIRECT WAGES*100/NET SALES
YEAR DIRECT WAGES NET SALES DWER
2012 4691.82 15215.3 30.8%
2011 3417.63 21021.3 16.25%
2010 2963.95 27111.8 10.9%

OBSERVATION
We can easily see that sales is continuously decreasing and direct wages are increasing which is
not good for the company. We can see an increment in direct wage expense ratio from 10.9% to
30.8%.This is not good for the company.
STOCK TO WORKING RATIO

=CS*100/WORKING CAPITAL
YEAR CS WC STWR
2012 5484.88 11139.7 49.2
2011 5175.84 11246.78 46.02
2010 6712.93 17851.0 37.6

EMPLOYEE REMUNERATION RATIO

= EMPLOYEE REMUNERATION/ NET SALES
YEAR EMPLOYEE
REMUNERATION
NET SALES ERR
2012 5191.43 15215.3 34.11
2011 3776.12 21021.3 17.96
2010 3276.25 27111.8 12.08



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OBSERVATION
We can easily see that sales is continuously decreasing and employee remuneration are
increasing which is not good for the company. We can see an increment in employee
remuneration ratio from 12.08 to 34.11.This is not good for the company.
TAX PROVISION RATIO

= PROVISION FOR TAX*100/ NET PROFIT
YEAR PROVISION FOR
TAX
NET PROFIT TPR
2012 248.2 (91.4)
2011 472.6 890.30 53.0
2010 544.4 2502.33 21.7

SELLING AND DISTRIBUTION RATIO

= SELLING AND DISTRIBUTION EXPENSES/ NET SALES
YEAR SELLING AND
DISTRIBUTION
EXPENSES
NET SALES SDR
2012 52.55 15215.3 3.4
2011 834.94 21021.3 0.03
2010 2085.09 27111.8 0.07

OBSERVATION
We can see an increase in the selling and distribution ratio from 0.03(2010-11) to 3.4(2011-12)





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PROPRIETARY OR NET WORTH RATIO

= NET WORTH/ TOTAL ASSETS
YEAR NET WORTH TOTAL ASSETS NWR
2012 13167.7 26785.68 0.49
2011 13040.8 31412.61 0.41
2010 12405.6 33218.7 0.37

OBSERVATION
We can see an increase in the net worth ratio from 2009-10 to 2011-12i.e from 0.37 to 0.49.

NET FIXED ASSETS TO NET WORTH RATIO

= NET FIXED ASSETS/ NET WORTH
YEAR NET FIXED
ASSETS
NET WORTH
2012 6424.06 13167.7 0.48
2011 6593.67 13040.8 0.50
2010 3157.16 12405.6 0.25

OBSERVATION
We can see an increase in the net fixed assets to net worth ratio from 2009-10 to 2010-11i.e from
0.25 to 0.50 But there is a decrease in 2011-12 by 0.2.










73









Chapter-5: Suggestions & Recommendations

CONCLUSION .......................................................................................... Error! Bookmark not defined.
RECOMMENDATIONS/STRATEGIES ........................................................ Error! Bookmark not defined.










74




CONCLUSION


It was observed that the size of current assets is decreasing continuously with the
decrease in sales. The excess of current assets shows positive liquidity position of the
firm and vice versa. We can see in each year current assets are going down. Compared to
2009-10 the current assets in 2011-12 there is a decrement from 29942.21 to 18693.18. In
2011-12 the major decrease was in inventories, cash and bank balance and short term
loans and advances.
Current liabilities show a growth till 2010-11 because the company creates credit in the
market by good transaction. But the current liabilities also decreased from 2010-11 to
2011-12 by 4935.61i.e from 1209.24 to 7553.53. Provisions show a growing trend and
the huge amount is being kept on these provisions. Though the profits of the company are
increased, income tax has also increased. Therefore there is a great need of maintaining
proper provisions. But in 2011-12 it has gone down to 547.25 from 6530.66.
We can see an increasing pattern in inventories. We can see that the inventories have
increased from 2009-10i.e10411.01 to 2011-12 i.e 17567.95.By this growth we can say
that the company is growing. A company uses inventories when they have demand in the
market.This is the biggest reason for increase in inventories.
If we analyse the cash and bank balance table we find that it follows an decreasing
trend. IN 2009-10 it had maintained a huge amount of cash which gradually decreases in
the year 2010-11 and 2011-12 from 7471.11 to 3299.24.This shows that the companys
cash position was not that much good which is not a good sign for the company.
If we analyse the debtors turnover analysis table we find that it follows an increasing as
well as decreasing trend. IN 2009-10 debtors were high which gradually decreases in the
year 2010-11 and again increased in2011-12 from 7949.31 to 8477.81.A simple logic is
that debtors increase only when sales increases and if sales increases it is a a good sign
for the company.
We can easily see that the loans and advances are continuously decreasing from the year
2009-10 to 2011-12 ie from 3777.11 to 1431.25.This does not show a good sign for the
expansion of the business.
If we analyse the above table we can see that it follow an uneven trend in the sundry
creditors and in other liabilities. It has decreased in 2010-11 and again increased in 2011-
12 from 6318.48 to 7009.28 because of the growth in other liabilities.

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From the above table we can see that provisions show a growing trend and the huge
amount is being kept on these provisions. Though the profits of the company are
increased, income tax has also increased. Therefore there is a great need of maintaining
proper provisions. But in 2011-12 it has gone down to 547.25 from 6530.66.
The current ratio indicates the availability of funds to payment of current liabilities in the
form of current assets. The above table indicates that the current ratio was satisfactory in
the year 2011-12i.e 2.4 as compared to 2010-11 i.e 1.90.A higher ratio indicates that
there were sufficient assets available with the organization which can be converted in
cash, without any reduction in the value.: Generally, the higher the ratio, the more liquid
the company is. This means the company would have a better short-term financial
standing to meet its debt obligations.
A low current ratio is can often be supported by a strong operating cash flow. On the
other hand, if a company is able to operate with a low current ratio, it means that the
company is more efficient about using its capital. Therefore, a low current ratio can lead
to higher return of assets. Generally speaking, the more liquid the current assets, the
smaller the current ratio can be without cause for concern. For most industrial companies,
1.5 is an acceptable current ratio.
It can be clearly seen that the Quick ratio is not less than 1:1 which means that the
company has sufficient liquid balance for the payment of current liabilities. . If the quick
ratio is greater than one, there would seem to be no danger that the firm would not be
able to meet its current obligations. If the quick ratio is less than one, but the current ratio
is considerably above one, the status of the firm is more complex. The liquid ratio of 1:1
is supposed to be standard or ideal.



















76



RECOMMENDATIONS/STRATEGIES


Due to the increased competition BPCL will have to change its present Segmentation
approach so that it becomes potent enough to face the weird competition .

The following measures have to be adopted to counter external threats and offset its
internal weaknesses.

Changing the Segmentation Approach

The segmentation of product wise in BPCL should be replaced by industry wise as this
will help the industry to have a proper coordination among various products so this
approach also helps in reducing the import problems, delivery delays and technology up
gradation with reduced manpower and increased efficiency .


Changing the Marketing Mix

The traditional 4P marketing mix should be changed to 6P in which the new Ps added
apart from Product , Price , Place , Promotion are Packaging & Delivery and Pace of
Technology.

These two added Ps help the company to get more close to the customers and to
deliver orders according to customers specification.

Re - looking into Pricing Policy

In the view of very tough market conditions and world wide decision and low order
book position :
Orders will be booked on marginal costing basis.
Review of pricing policy once order book position improves , recovery of overhead
from spare parts.


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Separate Costing Centres for different products

Since machining facilities and labour requirements are different for different products ,
separate costing centres shall be created so that each product price is competitive as
compared to our competitors.

Pre - Order Purchasing Activities by Marketing

These are the pre order purchasing activities done by marketing department :

To have competitive detailed offers for bought outs and major casting / forging.
To have complete details of bought outs before finalisation of order by the
customer.
Sub ordering time period will be reduced.
Sub vendors can offer better discount as they will be a partner to our jobs.
Reduction in overall cost will be assured.


Strengthening of Branch Office

For day to day dealings with the customers and to have latest feed back on
orders and competitors activities.
To improve upon business relationship with the customers and consultants.


Aggressive Marketing

Frequent interactions with end users and consultants.
Impress upon customers to include conditions in favour of BPCL .
To impress upon customers to recommend to turn key bidders for buying BPCL
made equipments only.
Marketing intelligence reports and take immediate action on it.





78


Services and Spare Parts

Prompt after sales service and supply of spare parts.
Posting of service personnel at major centres.

Taking up Turn Key Projects

It will help to improve book order position as well as financial position.
It will also help to have more orders for as now most of the customers are going
for turn key jobs rather than having more vendors for different items.
BPCL will act as Co-partners to BYNL.


Optimum selection

Optimum selection of BPCL products as well as brought outs to meet customers
requirements.


Entry to Thermal Power sectors

Since 60% of total pump requirements are from power sector , entry to this business will
give additional business to the tune of 300 to 500 lacs initially.
This will require :


Simplification of design.
Procurement of castings and manufacturing will be done in batches.
Tie ups with BHEL and other turn key contractors.


Improvement in Deliveries

By creating separate marketing cell for review of orders.
By installing SAP/ERP packages to inform the customers of their deliveries on-
line.

79


Production / Purchase controls sales order wise.


Sales Promotion Strategies

Maintaining close liaison with the government and public sector clients and
consultants.
Participation in trade delegations , trade fairs and exhibitions with in India and
abroad.

Organising seminars and workshops for important users and consultants.
Improving the level of customer satisfaction by :


1. Mail questioners and discussion either personally or on phone.
2. Organising camps at various sites for a limited period , listening to
customers problems , resolving them and providing guidance.


Presentation to customers / consultants before projects zero date through audio
visual presentation / slides / flims.
Tie ups with turn key contractors.
Scanning and circulation of tender notices advertised in news papers , government
bulletins.


Increasing Exports

Pumps and compressors are being manufactured with latest design and technology . Once
quality & delivery is maintained entry into export market will not be difficult with little
additional efforts.

Export market exists for following products :

Centrifugal & Reciprocating Pumps.
Reciprocating Compressors.
Gas Cylinders.
Finished Castings , components for Pumps and Compressors.


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Target Markets :

Middle East & African Countries such as Saudi Arabia , UAE , Iran , Iraq , Uganda ,
Ethiopia , Philippines , Nigeria , Sudan , Kenya.
South East Asian countries such as Malasiya , Indonesia , Thailand , Singapore , etc.
Neighbouring countries such as Bangladesh , Sri Lanka , Nepal ,etc.
























81



REFERENCES




























82


APPENDICES